Investment Banking: What It Is, Roles It Offers, Skills Needed, And More
Investment banking is a challenging, yet popular career option in contemporary times. Investment banking professionals, apart from being in great demand, are assured of steady career growth and lucrative compensation (both financially, and in terms of recognition and job satisfaction). Though at the outset, it must be said that it is an extremely demanding profession requiring tremendous hard work and long working hours. Let us begin by understanding what investment banking is.
What Is Investment Banking?
Investment banking is a specialised banking (generally advisory) activity related to any of the following functions:
- Raising capital (book building; underwriting; prospectus drafting; initial public offering; roadshows)
- Issuing and selling securities
- Private placement of capital
- Mergers and Acquisitions
- Corporate restructuring, divestitures
- Debt and equity services
- Bond issuance and pricing in bond markets
- Hedge funds, mutual funds and pension advisory services
Who Seeks Investment Banking Services?
Investment banking services are sought by the following.
Governments | Investment banks work for governments to raise money (via sale of government securities), trade securities, sale of shares of public sector undertakings (PSUs).
Corporations | Investment bankers work with both private and public companies to help them raise money from capital markets via IPO/FPO, make acquisitions, sell business(es), conduct research necessary for these activities, make valuations, and structure deals.
Institutions | Investment banks work with institutional investors, who manage other people’s money to help them trade securities and provide research (examples are mutual funds, portfolio management schemes, etc.). They also work with private equity firms to help them identify and make investments in startups/other companies, or acquire companies and at an opportune time, exit those positions by either sales to a strategic buyer or via an IPO.
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High Net Worth Individuals (HNIs) | High Net Worth Individuals also require investment banking advisory services to help them make investment decisions in startups and other companies.
Which Are A Few Investment Banks?
A few examples of investment banks are :-
- Bank of America Merrill Lynch
- Blackstone
- Credit Suisse
- Deutsche Bank
- Goldman Sachs
- J P Morgan Chase & Co.
- Morgan Stanley
- Nomura Holdings
- SBI Capital Markets
Roles Needed In Investment Banks
What are some of the functions comprised by an investment bank? Let us discuss a few.
Financial Analyst
Financial analysts are required to study and analyse financial behaviour and past data, make recommendations about budgeting and financial projections, and identify trends. They are responsible for updating deal books on a periodic basis and perform industry analysis to help in decision making. They are also required to make impactful powerpoint presentations called ‘pitch books’ for meetings with clients and prospective customers.
Portfolio Analyst
Portfolio analysts study the performance of a client’s financial portfolio, advise about changes/rebalancing required from time-to-time keeping in view the client’s requirements, and develop business synergies/forward or backward integration of business activities, keeping ahead of competition or to increase market share, or increase eyeballs in the case of new-age internet companies.
Before you choose to become an investment banker, make sure you do thorough research about how professional and personal life is for those in the field.
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Investment Analyst
Investment analysts are needed to conduct research on investment opportunities and financial performance in various fields like commodities market, stocks, currencies, derivatives, bonds, government securities; and identify trends keeping in view national and international political, economic, social and cultural factors impacting these investment vehicles, with an aim to identify emerging winners for their clients within the sphere of chosen investment options.
Investment Consultant
Investment consultants advise clients about investing their money or, if authorised, invest on behalf of their clients. The role entails a lot of research and vetting of new investment opportunities, helping with the trustworthiness of potential business partners and growth prospects, keeping in mind the business and regulatory environment. They are required to understand investment goals, available resources, risk factors and client preferences in order to develop a strategic investment plan and exit strategy.
Banking Associate
Banking associates develop financial models, make future financial projections and business valuations. They draft financial documents, write proposals and sort financial records. Banking associates also assist with equity/debt offerings (bonds, debentures, etc.), buy-back of shares and other financial transactions, ensure compliance with statutory requirements, and regulatory standards and norms.
Account Manager
Account managers, also called investor relations managers, are responsible for maintaining relationships with clients, renewing contracts, and resolving issues arising from time-to-time. They identify new clients, and do matchmaking between clients wanting to invest money and those wanting to raise money, provide key updates to both the parties including investment opportunities and risk factors, and negotiate deals based on business arrangements.
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Senior-Level Positions
As one grows in the field of investment banking, their role becomes more supervisory in nature. At senior positions, knowledge of macro issues and industry trends, prevailing socio-economic factors, ability to foresee challenges and spot opportunities, and strong networking skills are some of the traits necessary to , succeed.
What Skills Are Needed?
Before one chooses investment banking as a career, they must know the skills that one is required to have and eventually develop in this field.
- Data-driven analytical skills
- Strong number crunching
- Communication
- Presentation/negotiation
- Orientation towards sales and marketing
- Interest in reading financial newspapers, magazines, related literature
Why Investment Banking?
What are the perks of a career in investment banking? Let us discuss.
Good Money | The field of investment banking entails high starting salaries, decent bonuses and incentives for those who join it. The quantum of bonus depends on the performance of the employee as well as that of the organisation. Earning potential increases exponentially as the person gains experience in this field and collects some success stories under their belt.
Lots To Learn | Each day in the field of investment banking brings new challenges, perspectives and learning opportunities, which lead a person to learning new skills, and gaining knowledge and expertise. Also, one gets to work wirth extremely talented professionals who have a lot to teach with their experience and persona. There are immense opportunities for networking as well.
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Before you choose to become an investment banker, make sure you do thorough research about how professional and personal life is for those in the field. The field has lots to promise and fulfill for those who are passionate about it. In a further piece, we shall be discussing how one can prepare for a career in investment banking.
Pramod Nagpal is Chartered Accountant by training, (Retd.) Managing Director, Central Cottage Industries Corporation Of India Ltd. (A Govt. Of India undertaking, under Ministry Of Textiles). He holds close to four decades of experience in the areas of finance and commerce. Pramod has keen interest in the field of education, and guiding students on harnessing available opportunities to achieve their goals.
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